2025 (7) TMI 168 - AT - Income Tax

Addition u/s 69A r/w section 115BBE - cash deposits made during the demonetization period - assessee stated that the AO arbitrarily added the deposits without appreciating that the source of the fund was already in record and no contrary evidence was given on the available cash-in-hand HELD THAT - We find that in the present case the assessee has sufficient cash balance of Rs. 11, 30, 655/- at the very beginning of the financial year 2016-17 therefore the alleged addition of Rs. 5, 00, 000/- made by the Assessing Officer u/s 69 is without any basis and reasoning. We accordingly delete the addition as the assessee has duly disclosed the cash balance to make the alleged deposit during the demonetization period. Assessee appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

(a) Whether the addition of Rs. 5,00,000/- made by the Assessing Officer under section 69A of the Income Tax Act, treating the cash deposit during the demonetization period as unexplained income, is justified in the facts of the case?

(b) Whether the assessee has satisfactorily demonstrated that the cash deposit of Rs. 5,00,000/- during the demonetization period was made out of disclosed and audited cash-in-hand balance, thereby negating any presumption of unexplained income?

(c) Whether the orders of the Assessing Officer and the Commissioner of Income-tax (Appeals) in making and sustaining the addition without appreciating the evidences submitted by the assessee are legally sustainable?

(d) Whether penalty proceedings under section 271AAC initiated on the basis of the addition are justified, considering the outcome on the addition issue?

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (b): Justification of addition under section 69A on cash deposit during demonetization period

Relevant legal framework and precedents: Section 69A of the Income Tax Act deals with unexplained cash credits or deposits, allowing the Assessing Officer to treat such amounts as income of the assessee if the source is not satisfactorily explained. The burden lies on the assessee to prove the source of cash deposits, especially during the demonetization period when scrutiny was intensified. Precedents establish that if the assessee can prove the legitimate source of cash, no addition under section 69A is warranted.

Court's interpretation and reasoning: The Tribunal carefully examined the assessee's submissions and evidences, including the audited financial statements for the years ending 31.03.2016 and 31.03.2017, which showed a cash-in-hand balance of Rs. 11,30,655/- as on 31.03.2016. The Tribunal noted that the assessee had declared this cash balance in the return and the audited accounts, which was available prior to the demonetization period.

The Tribunal found that the assessee deposited Rs. 5,00,000/- during the demonetization period out of this disclosed cash balance, which was sufficient and legitimate. The Tribunal held that the Assessing Officer and the ld. CIT(A) failed to appreciate this critical evidence and arbitrarily treated the deposit as unexplained income without any contradictory material or evidence to disprove the source.

Key evidence and findings: The key evidence included:

• Audited statement of accounts showing cash-in-hand of Rs. 11,30,655/- as on 31.03.2016;
• Return of income and ITR-6 form showing the same cash balance;
• Submissions before the ld. CIT(A) and the Tribunal explaining that the deposit was made from the disclosed cash balance;
• Absence of any contrary evidence from the Revenue disputing the source of funds.

Application of law to facts: Applying section 69A, the Tribunal noted that the addition can only be made if the source of cash deposits is unexplained or not satisfactorily explained. Since the assessee had already disclosed and accounted for sufficient cash balance, the addition was unwarranted.

Treatment of competing arguments: The Revenue argued that the cash deposit during demonetization was suspicious and required addition. However, the Tribunal found that this argument was not supported by any evidence negating the disclosed cash balance. The ld. CIT(A) had dismissed the assessee's evidence without proper appreciation, which was held to be erroneous.

Conclusions: The addition of Rs. 5,00,000/- under section 69A was deleted as the assessee satisfactorily proved the source of the cash deposit from the disclosed cash-in-hand balance.

Issue (c): Legality of orders of Assessing Officer and ld. CIT(A) in sustaining addition

Relevant legal framework and precedents: The principles of natural justice and appreciation of evidence require that the authorities must consider all relevant evidences and submissions before making additions. Arbitrary rejection of evidence without reasoned analysis is not sustainable.

Court's interpretation and reasoning: The Tribunal observed that the ld. CIT(A) upheld the addition without considering the audited accounts and other evidences submitted by the assessee. The Tribunal held that such mechanical acceptance of the Assessing Officer's order without independent scrutiny was contrary to principles of fair adjudication.

Key evidence and findings: The Tribunal relied on the paper-book submitted by the assessee containing detailed financial statements and return forms, which were ignored by the ld. CIT(A).

Application of law to facts: The Tribunal applied the legal standards requiring proper appreciation of evidence and found the orders of the lower authorities deficient.

Treatment of competing arguments: The Revenue's support of the lower authorities' orders was rejected due to lack of substantive evidence to counter the assessee's proofs.

Conclusions: The orders of the Assessing Officer and ld. CIT(A) sustaining the addition were quashed for failure to appreciate the evidences on record.

Issue (d): Penalty proceedings under section 271AAC

Though penalty proceedings under section 271AAC were initiated separately, the Tribunal did not expressly adjudicate on the penalty as the addition itself was deleted. Since penalty under section 271AAC is contingent upon concealment or furnishing inaccurate particulars of income, deletion of the addition implies that there was no concealment. Therefore, penalty proceedings would not be sustainable.

3. SIGNIFICANT HOLDINGS

"In the present case, the assessee has sufficient cash balance of Rs. 11,30,655/- at the very beginning of the financial year 2016-17, therefore, the alleged addition of Rs. 5,00,000/- made by the Assessing Officer u/s 69 is without any basis and reasoning."

"The ld. CIT(A) without considering the arguments made by the assessee and without appreciating the evidences submitted by the assessee simply upheld the order of the Assessing Officer by dismissing the appeal of the assessee."

"The addition of Rs. 5,00,000/- as unexplained cash deposit during the demonetization period is deleted as the assessee has duly disclosed the cash balance to make the alleged deposit."

Core principles established include the requirement that additions under section 69A must be based on failure to satisfactorily explain the source of cash deposits, and that audited financial statements and returns showing sufficient cash-in-hand constitute valid explanation negating such additions.

The final determination was that the addition of Rs. 5,00,000/- under section 69A was deleted, and consequently, the appeal of the assessee was allowed.